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Bear Diagonal Spread
Bear Put Diagonal Spread
A Bull Put Diagonal Spread is done with a purchase of a longer dated out-of-the-money Put option and sale of a shorter dated out-of-the-money Put option, both which have different strike prices.
Payoff Diagram:
Direction Assumption: Neutral-Bearish
Maximum Profit at Near-Dated Expiration: Credit received from selling Put + Profit of Long Put
Maximum profit at the near-dated expiration is realized when the underlying is at the Short Put strike price.
Maximum Profit at Far-Dated Expiration: Unlimited
Maximum Loss at Near-Dated Expiration:: Unlimited
Maximum Loss at Far-Dated Expiration: Limited to the debit paid for the Long Put.
Maximum loss at the far-dated expiration is realized if the underlying moves below the Long Put strike price.
Breakeven Price at Far-Dated Expiration: Equal to the Long Put Strike Price + Premium paid
Theta: Passage of Time -> Positive Effect
The net effect of time decay is positive. It will erode the value of the Short Put in a bigger extent than the Long Put.
